The Sound of Silence: What Does a Standard Unqualified Audit Opinion Mean Under the New Going Concern Financial Accounting Standard?

Owens, Joel; Saunders, K. Kelli; Schachner, Samantha; Thornock, Todd A.

doi:10.2139/ssrn.3374039

Cited by 8 publications

(6 citation statements)

References 37 publications

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“…The results confirm the expectations that, after the standard came into effect, the auditor was more likely to issue a going concern opinion in banks in financial distress, corroborating H 5 . This is consistent with the premise that changes in the professional standards usually raise references to operational continuity (Citron & Taffler, 2004;Carcello et al, 2009;Sormunen et al, 2013), given that the auditor's accountability becomes clearer (Owens et al, 2019).…”

Section: Tests Of the Determinants Of The Auditors' Going Concern Opi...supporting

confidence: 79%

The auditors’ position on operational continuity in banks in financial distress

Araujo

Dantas

2022

Rev. contab. finanç.

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This article aimed to identify factors that determine the auditor’s position in relation to the operational continuity of banks in financial distress. This research fills a gap in the national literature regarding the auditors’ position on operational continuity in the banking industry - a relationship subject to conflict between the premise of informing the user about operational continuity and the risk of a self-fulfilling prophecy. Understanding the context that explains the action of auditors in relation to going concerns in the banking industry is important for economic agents to comprehend whether and how auditing contributes to an environment of trust, credibility, and security in the financial market, considering that continuity risk warrants an opinion from the auditors, given their role of mitigating informational asymmetry and principal-agent conflicts. The research results contribute to the activities of market and professional regulatory bodies, of economic agents interested in financial disclosure, and of the auditors themselves for understanding and improving auditing work in banks. The methodology used was the identification of cases of financial distress in the Brazilian banking industry between 1990 and 2018 and logit model estimation to verify the determining factors of the position on operational continuity in these cases. The empirical tests showed that the auditor’s propensity to issue an opinion on the operational continuity of banks in financial distress is related to the importance of the client, to state control, to the application of NBC TA 570, and to the indicators of capital adequacy, asset quality, profitability, and liquidity. No relationship was confirmed with Big N auditors and capital of national origin.

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Section: Tests Of the Determinants Of The Auditors' Going Concern Opi...supporting

confidence: 79%

The auditors’ position on operational continuity in banks in financial distress

Araujo

Dantas

2022

Rev. contab. finanç.

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“…Peer et al (2017) indicate that Prolific is suitable for social science experiments, and Prolific respondents are more diverse. Prolific has been used in other recent accounting studies (Murphy et al, 2020;Owens et al, 2020;Rennekamp et al, 2021). 15 Human ethics approval for this study was obtained from the authors' institution.…”

Section: Discussionmentioning

confidence: 99%

Effects of regulatory enforcement style and audit firm remedial actions on investors' perceptions of audit quality

Huang

Phang

2022

Int J Auditing

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We examine how investors perceive audit quality when regulators adopt different enforcement styles to communicate audit inspection findings, and when the audit firm responds to the inspection findings. We employed a 2 × 3 between‐subjects experimental design, with regulatory enforcement style (critical or supportive) and audit firm response (defensive actions or remedial actions or control) as the independent variables. We find that investors perceive a relatively high level of audit quality when the audit firm chooses to take remedial actions, regardless of regulators' enforcement styles. In contrast, investors perceive a relatively low level of audit quality when the audit firm chooses to take defensive actions in response to regulators that impose a critical enforcement style. Additional analyses show that investors' perception of audit quality mediates the joint effects of regulatory enforcement styles and audit firm response on willingness to invest. Our findings suggest implications for the ways that regulators adopt different enforcement styles, which should be of interest to audit practitioners and regulators, as the findings show the potential consequences of different firm response strategies to inspection findings.

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“…Managers' perceptions regarding the fairness of the going concern standard also influences their decisions about disclosures of going concern issues. There is also some experimental evidence that the failure of management to disclose going concern uncertainty can increase auditor liability (Owens et al 2020).…”

Section: Discussionmentioning

confidence: 99%

“…There is also some experimental evidence that the failure of management to disclose going concern uncertainty can increase auditor liability (Owens et al. 2020).…”

Section: Discussionmentioning

confidence: 99%

Going Concern Uncertainty: What Do Firms Disclose?

Bradbury

Fargher

Potter

et al. 2022

Australian Accounting Review

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We examine disclosure of going concern uncertainties by Australian companies. We begin by outlining the extant reporting framework applicable from accounting and auditing standards, and compare the approach to this issue taken across several different countries – Australia, New Zealand, the United Kingdom and the United States. We then examine reporting of going concern uncertainties for a selection of 127 Australian companies reporting at 30 June 2020 that also receive modified audit reports highlighting going concern issues. Our results indicate substantial variation in the specific requirements of audit and accounting standards impacting going concern disclosure across jurisdictions, with relevant disclosure guidance for Australian entities primarily contained in auditing, rather than accounting, standards. Not surprisingly then, we also observe significant variation in management reporting practices. These results inform our understanding of existing disclosure requirements and highlight how regulatory reliance on auditor discussion of going concern issues likely results in relatively limited management disclosure. We suggest that additional guidance may be required from accounting standard setters and also regulators with respect to management discussion of going concern uncertainty.

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The Sound of Silence: What Does a Standard Unqualified Audit Opinion Mean Under the New Going Concern Financial Accounting Standard?

Cited by 8 publications

References 37 publications

The auditors’ position on operational continuity in banks in financial distress

The auditors’ position on operational continuity in banks in financial distress

Effects of regulatory enforcement style and audit firm remedial actions on investors' perceptions of audit quality

Going Concern Uncertainty: What Do Firms Disclose?

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